Title: UNRAVELING THE TRUE DRIVERS OF RISING COLLEGE TUITION AND POLICY PATHWAYS
Authors:
Masaaki Yoshimori and Heather Houston
Abstract:
Over the past three decades, college tuition fees in the US have increased significantly, outpacing inflation and imposing substantial financial burdens on students and their families. This study explores the dynamic relationships between college tuition, wage growth (WG), and inflation through a comprehensive analysis using a Vector Auto regression (VAR) model and an event-study approach. Using data from 1986 to 2023, it examines how these macroeconomic factors impact private, in-state, and out-of-state college tuition costs. Our analysis reveals that inflation plays a critical role in driving tuition increases, particularly for private and in-state colleges, while WG has a more complex influence on in-state tuition. The findings indicate that inflation cause, in the sense of Granger, private and in-state tuition hikes, underscoring the necessity of inflation control to manage rising education costs effectively. It highlights the urgent need for targeted policy interventions, such as a payment interest rate for inflation-adjusted student loans, which can relieve those disproportionately affected by high inflation. Such measures aim to alleviate financial strain and promote long-term economic stability by accounting for the erosion of purchasing power due to inflation. The study concludes by emphasizing the importance of developing strategic policies to mitigate the financial challenges. By understanding the interplay between tuition costs, WG, and inflation, this study offers insights into practical policy measures to support students’ financial well-being and economic prospects. The findings contribute to the ongoing discourse on higher-education affordability and the economic pressures facing today’s students. This research underscores the critical need for proactive measures to address the financial impact of rising tuition and to support equitable access to higher education.
Keywords: Education Finance, Higher Education Costs, Inflation, Government Expenditures and Education, Wages.
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